Bassett Furniture stock is on a big losing streak – but a recent insider buy may signal the shares are cheap

It’s been a tough 2018 for the home furnishings stocks. As if Amazon’s invasion of the home goods space wasn’t enough, manufacturers have had to deal with skilled labor shortages, fluctuating demand, then tariffs on imported Chinese products. Of the 18 stocks in the home furnishings group, only one has positive year-to-date performance. That would be Libbey Inc. (NYSE: LBY) which is up all of 1.06% YTD. The average home furnishing stock is down 25% in 2018.

Bassett Furniture (Nasdaq:BSET), a furniture manufacturer and retailer with a market cap of $230 million, and annual sales of half a billion dollars, is one of the worst performers of the home goods group. With its October 16 close of $21.42, BSET is down over 43% year-to-date.

And here’s something you don’t often see: Bassett stock has declined for 11 months in a row. The last time BSET shares were higher on the last day of a month compared to the first day, was October of 2017. Note the red bars below. However, half way through October of 2018, BSET is showing green for the month. Will the losing streak be broken this month? The odds of that may be improving.

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On October 16, Bassett Director John R. Belk filed a Form 4 disclosing that he bought 15,000 shares of BSET at $20.99, spending $315,000 dollars. Belk joined Bassett Furniture’s board in July of 2016. Though he has extensive public company board experience, Belk had never purchased shares on the open market as a corporate insider until the BSET buy. An obvious question is: Why would he Bassett shares now?

It’s possible that Belk wants to show support for the company by making an open market purchase. Belk’s salary isn’t disclosed, but according to the Boston Globe, typical board member compensation for a micro-cap public company is $105,000 annually. Assuming that salary level is representative, Belk would have invested 3x his compensation by buying 15,000 shares. That seems like a lot, if one’s intent is simply to show a token of support.

Most likely, Belk bought BSET because he believes the shares are a good value at this level, and that at some point he’ll make money on his investment. Keep in mind that SEC short-swing profit rules require company insiders to return any profits made from the purchase and sale of company stock if both transactions occur within a six-month period. So, Belk’s investment horizon is at least six months.

And of course, as a veteran executive sitting in on board meetings, the director is likely to have some unique insights into Bassett Furniture’s prospects.

Only two brokerage firms follow Bassett: Sidoti and Company, which upgraded BSET to a buy in May; and Stifel Nicolaus, which on September 28 lowered its price target on the stock to $21 while maintaining a hold rating.

A Seeking Alpha article dated July 11 is entitled “Bassett Furniture Gets Even Cheaper – But Not Cheap Enough (Yet)”. The author Vince Martin wrote that BSET then traded at a discount to peers, “particularly on an EV/EBITDA basis.” He also stated that “EPS growth should benefit in FY19 from a slowing of new store openings – and the absence of the associated losses. But the combination of weak comps and higher input costs looks concerning for a relatively thin-margin business – and BSET lacks a catalyst, at least in the near term.” BSET shares are about 25% lower now than when that report was written.

With a current price-to-book ratio of 1.19 and a price-to-sales of 0.51, the shares certainly look cheap. The insider purchase tends to confirm this conclusion.

By itself, insider buying is not a reason to buy a stock – further research is always required. But after a big decline, Bassett Furniture shares definitely merit further investigation.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the article.

Mark Gaffney is an investor and money manager with over two decades experience analyzing and profiting from the SEC filings of "Whales" -- elite managers and corporate insiders with superior information.
mark@gaffneycapital.com